SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001, or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-16125
FASTENAL COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
(Address of principal executive offices) (Zip Code)
(507) 454-5374
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at April 15, 2001
Common Stock, $.01 par value 37,938,688
FASTENAL COMPANY
INDEX
Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of March 31, 2001 and December
31, 2000 1
Consolidated Statements of Earnings for the three months ended
March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4
Management's discussion and analysis of financial condition and
results of operations 5-7
Quantitative and qualitative disclosures about market risk 8
Part II Other Information:
Exhibits and reports on Form 8-K 8
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share information)
(Unaudited)
March 31, December 31,
Assets 2001 2000
- --------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 35,746 19,710
Marketable securities 3,027 4,028
Trade accounts receivable, net of allowance for doubtful
accounts of $2,238 and $2,238, respectively 113,501 106,120
Inventories 145,669 143,068
Deferred income tax asset 4,060 4,060
Other current assets 9,385 7,469
- --------------------------------------------------------------------------------------------------------
Total current assets 311,388 284,455
Marketable securities 8,032 8,969
Property and equipment, less accumulated depreciation 110,304 105,807
Other assets, less accumulated amortization 3,211 3,233
- --------------------------------------------------------------------------------------------------------
Total assets $ 432,935 402,464
========================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 21,181 19,898
Accrued expenses 14,391 13,502
Income taxes payable 14,806 3,179
- --------------------------------------------------------------------------------------------------------
Total current liabilities 50,378 36,579
- --------------------------------------------------------------------------------------------------------
Deferred income tax liability 6,627 6,627
- --------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 0 0
Common stock, 50,000,000 shares authorized
37,938,688 shares issued and outstanding 379 379
Additional paid-in capital 4,424 4,424
Retained earnings 372,572 355,248
Accumulated other comprehensive loss (1,445) (793)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 375,930 359,258
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 432,935 402,464
========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in thousands except earnings per share)
(Unaudited)
Three months ended
March 31,
-----------------------------
2001 2000
- ------------------------------------------------------------------------------------
Net sales $ 201,016 176,268
Cost of sales 96,411 84,081
- ------------------------------------------------------------------------------------
Gross profit 104,605 92,187
Operating and administrative
expenses 71,559 60,152
- ------------------------------------------------------------------------------------
Operating income 33,046 32,035
Other income (expense):
Interest income 651 639
Loss on disposal of
property and equipment (85) (78)
- ------------------------------------------------------------------------------------
Total other income 566 561
- ------------------------------------------------------------------------------------
Earnings before
income taxes 33,612 32,596
Income tax expense 12,873 12,550
- ------------------------------------------------------------------------------------
Net earnings $ 20,739 20,046
- ------------------------------------------------------------------------------------
Basic and diluted earnings per share $ .55 .53
- ------------------------------------------------------------------------------------
Weighted average shares
outstanding 37,939 37,939
- ------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Three months ended
March 31,
------------------------
2001 2000
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 20,739 20,046
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 3,275 2,717
Loss on disposal of property and equipment 85 78
Bad debt expense 1,285 1,067
Deferred income taxes 0 2,000
Amortization of goodwill and non-compete 55 55
Changes in operating assets and liabilities:
Trade accounts receivable (8,666) (13,968)
Inventories (2,601) (4,194)
Other current assets (1,916) 33
Accounts payable 1,283 4,292
Accrued expenses 889 2,332
Income taxes payable 11,627 8,801
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,055 23,259
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions of property and equipment, net (8,604) (10,447)
Proceeds from sale of property and equipment 747 2,644
Translation adjustment (652) (77)
Net decrease in marketable securities 1,938 69
Increase in other assets (33) (28)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,604) (7,839)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payment of dividends (3,415) (3,035)
- -------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,415) (3,035)
- -------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16,036 12,385
Cash and cash equivalents at beginning of period 19,710 27,849
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 35,746 40,234
- -------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 1,246 1,749
- -------------------------------------------------------------------------------------------------
Interest $ 0 0
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Fastenal Company
and subsidiaries (collectively referred to as the Company) have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. They do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. However, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Company's consolidated financial statements as of and for the year ended
December 31, 2000. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
(2) Derivative Instruments and Hedging Activities
During the first quarter of 2001 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities". The adoption of SFAS 133 did not impact the Company's
financial condition or results of operations.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. (Dollar amounts are in thousands.)
Three months ended March 31, 2001 vs. 2000
- ------------------------------------------
Net sales for the three months ended March 31, 2001 were $201,016, an increase
of 14.0% over net sales of $176,268 for the comparable period in 2000. The
increase came primarily from higher unit sales. Higher unit sales resulted
primarily from increases in sales at existing store sites. The increases in
sales at existing store sites are due primarily to increases in market share and
the introduction of new product lines. Sites opened in 1999 or earlier had
average sales increases of 9.5%. The remainder of the 14.0% sales growth came
from store sites opened in 2000 and during the first three months of 2001.
The mix of sales during the first three months of 2001 and 2000, from the
original Fastenal(R) product line (which consists primarily of threaded
fasteners) and from the newer product lines, was as follows:
Product line 2001 2000
---------------------------------------------------------------------------
Fastener product line 61.5% 67.0%
---------------------------------------------------------------------------
Newer product lines 38.5% 33.0%
---------------------------------------------------------------------------
The newer product lines consist of and were introduced as follows:
Product line Introduced
---------------------------------------------------------------
Tools 1993
---------------------------------------------------------------
Cutting tools 1996
---------------------------------------------------------------
Hydraulics & pneumatics 1996
---------------------------------------------------------------
Material handling 1996
---------------------------------------------------------------
Janitorial supplies 1996
---------------------------------------------------------------
Electrical supplies 1997
---------------------------------------------------------------
Welding supplies 1997
---------------------------------------------------------------
Safety supplies 1999
---------------------------------------------------------------
Net earnings for the three months ended March 31, 2001 were $20,739, an increase
of 3.5% over net earnings of $20,046 for the comparable period in 2000.
Operating income grew 3.2% from 2000 to 2001, a rate of growth lower than the
net sales rate of growth. The lower rate of growth in operating income occurred
primarily because (1) gross margins decreased from 52.3% to 52.0% and (2)
operating expenses increased at a 19.0% rate, a rate greater than the net sales
growth rate. The factors behind these two changes are discussed below.
The Company branch (store site) personnel totaled 4,444 on March 31, 2001, an
increase of 2.0% over the 4,356 on December 31, 2000.
-6-
ITEM 2. (continued)
The quarter began with a 20.3% growth in daily sales in January. A noticeable
recovery from the 17.8% growth in daily sales experienced in December 2000. The
growth in daily sales dropped to 16.4% in February and to 11.7% in March. This
decline in the daily sales growth rates continues a trend, which began in
November 2000. This trend mirrors the overall weakening of the industrial
economy we service in North America.
The increased pressures of the competitive marketplace in a slowing economy and,
to a lesser extent, change in product mix impacted our gross margin during the
quarter. The gross margin was 52.0% in the first quarter of 2001 and 52.3% in
the comparable period in 2000. The Company experienced negative leverage during
the quarter. This was due to (1) the aforementioned decrease in gross margin,
(2) the additional expenses of planned store site openings, and (3) the added
impact of increases in utility costs when compared to the same quarter in 2000.
The Company opened 22, 20, 36, and 50 new store sites during the most recent
four quarters respectively, for a total of 128 (or 15.6%). While the new stores
continue to build the infrastructure for future growth, the added expenses
related to payroll, occupancy, and transportation costs impact the Company's
ability to leverage earnings in a slowing industrial economy.
As we move into the second quarter of 2001 we will continue to open stores. The
time line for slowing down the planned openings is such that openings can be
altered in a short time span, usually less than 60 to 90 days. The Company is
committed to continued earnings growth. As the second quarter unfolds the
Company will continue to reevaluate the level of planned openings.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the three-month period resulted in the growth
of trade accounts receivable and inventories. Property and equipment increased
because of: (1) the construction of a new distribution center in Kansas City
which we expect to occupy in late third or early fourth quarter of 2001, (2) the
expansion of our distribution center in Scranton, PA, (3) the purchase of
software and hardware for the Company's information processing systems, (4) the
addition of certain pickup trucks and (5) the addition of manufacturing and
warehouse equipment. Disposals of property and equipment related to the planned
disposition of certain pickup trucks and semi-tractors and trailers in the
normal course. Cash requirements for these asset changes were satisfied from
net earnings, cash on hand, and the proceeds of asset disposals. As of March
31, 2001, the Company had no material outstanding commitments for capital
expenditures.
Management anticipates funding it current expansion plans with cash generated
from operations, from available cash and cash equivalents, and, to a lesser
degree, from its borrowing capacity.
-7-
ITEM 2. (continued)
Certain Risks and Uncertainties
- -------------------------------
This discussion contains statements that are not historical in nature and that
are intended to be, and are hereby identified as, "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995, including statements
regarding planned store openings, the timeline for altering planned openings,
and the expected time of occupancy of the Kansas City distribution center. The
following factors are among those that could impact the Company's plans and
performance, and cause the Company's actual results to differ materially from
those predicted in such forward-looking statements: (i) an upturn or downturn in
the economy could impact sales at existing stores and the rates of new store
openings and additions of new employees, (ii) an upturn or downturn in the
economy, or a change in product mix, could impact gross margins, (iii) a change,
from that projected, in the number of smaller communities able to support future
store sites could impact the rate of new store openings and additions of new
employees, (iv) the ability of the Company to develop product expertise at the
store level, to identify future product lines that complement existing product
lines, to transport and store certain hazardous products and to otherwise
integrate new product lines into the Company's existing stores and distribution
network could impact sales and margins, (v) increases or decreases in fuel and
utility costs could impact distribution and occupancy expenses of the Company,
(vi) the ability of the Company to successfully attract and retain qualified
personnel to staff the Company's smaller community stores could impact sales at
existing stores and the rate of new store openings, (vii) changes in
governmental regulations related to product quality or product source
traceability could impact the cost to the Company of regulatory compliance,
(viii) inclement weather could impact the Company's distribution network, (ix)
foreign currency fluctuations or changes in trade relations could impact the
ability of the Company to procure products overseas at competitive prices and
the Company's foreign sales, (x) disruptions caused by the implementation of the
Company's new management information systems infrastructure could impact sales,
and (xi) changes in the rate of new store openings could impact expenditures for
computers and other capital equipment.
-8-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from changes in interest rates
and foreign currency exchange rates. Changes in these factors cause fluctuations
in the Company's earnings and cash flows. The Company evaluates and manages
exposure to these market risks as follows:
Interest Rates - The Company has a $10 million line of credit of which $0 was
outstanding at March 31, 2001. The line bears interest at 0.9% over the LIBOR
rate.
Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the
Company's net investments and earnings denominated in foreign currencies. The
Company's primary exchange rate exposure is with the Canadian dollar against the
U.S. dollar. The Company's estimated net earnings exposure for foreign currency
exchange rates was not material at March 31, 2001.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as
amended (incorporated by reference to Exhibit 3.1 to Fastenal
Company's Form 10-Q for the quarter ended September 30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-14923)
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the quarter
ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FASTENAL COMPANY
/s/ Robert A. Kierlin
-------------------------------
(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date April 16, 2001 /s/ Daniel L. Florness
------------------ -------------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Fastenal Company, as amended
(incorporated by reference to Exhibit 3.1 to Fastenal Company's Form
10-Q for the quarter ended September 30, 1993).
3.2 Restated By-Laws of Fastenal Company (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-14923).